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How To Save Tax By Investing In Mutual Funds?

Updated on December 5, 2023 , 2383 views

Tax saving Mutual Funds are funds that help in planning Taxes in a better way. ELSS Mutual Funds are one of the best tax saving Mutual Funds, which provide tax benefits upto INR 1,50,000 under Section 80C of income tax Act. Though there are various tax saving investments under section 80C, ELSS or Equity Linked Savings Scheme is one of the most popular ones. It is a tax saver Mutual Fund that is formulated to lessen your burden of taxes and at the same time helps you generate returns out of the investment.

Tax Saving Mutual Funds (ELSS) Under Section 80C

An ideal Tax Saving Investment option varies from person to person depending on factors such as the financial needs, goals and risk appetite. Under section 80C of Indian Income Tax Act, there are various tax saving investments available to help you save tax. These include tax saving Mutual Fund ELSS, PPF, EPF, NPS, FD, NSC, ULIP etc. However, some of the top tax saving Mutual Fund, ELSS plans include-

Top 10 Tax Saving ELSS Mutual Funds Plans

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2022 (%)
IDFC Tax Advantage (ELSS) Fund Growth ₹126.235
↑ 0.32
Tata India Tax Savings Fund Growth ₹35.6439
↓ -0.01
DSP BlackRock Tax Saver Fund Growth ₹104.632
↑ 0.05
L&T Tax Advantage Fund Growth ₹98.1768
↓ -0.09
Principal Tax Savings Fund Growth ₹411.298
↑ 0.62
Aditya Birla Sun Life Tax Relief '96 Growth ₹47.45
↑ 0.06
HDFC Long Term Advantage Fund Growth ₹595.168
↑ 0.28
BOI AXA Tax Advantage Fund Growth ₹132.12
↑ 0.02
JM Tax Gain Fund Growth ₹36.6838
↓ -0.15
Invesco India Tax Plan Growth ₹99.01
↑ 0.25
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 7 Dec 23

Tax saving Mutual Fund ELSS is one of the best Investing options available to provide good returns under section 80C. One can easily save tax and grow money by investing in Equity Linked Saving Scheme (ELSS) Mutual Funds in India. So let’s understand ELSS in detail and the various benefits it offers.

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ELSS or Equity Linked Savings Scheme

ELSS is a dedicated Equity Mutual Fund scheme that predominantly invests in equity related instruments and helps investors to avail tax benefits. The ELSS Mutual Funds generally have a high risk due to the kind of investments they take exposures to, but what makes them beneficial is its exceptional return potential over a long-term period.

Advantages of Tax Saving Mutual Funds ELSS (Equity Linked Savings Scheme)


1) ELSS Has a Lock-in of 3 Years

One of the major benefits of ELSS is its lower lock-in period. The ELSS mutual fund has a lock period of only 3 years which is much convenient than others like Tax Saving Fixed Deposit that has a lock period of five years, NSC has it for six years and PPF has the highest lock period of 15 years.

2) Tax Saving Mutual Funds ELSS Offer Flexibility of Growth or Dividend

ELSS mutual funds offer both dividends as well as growth options. So investors can avail a lump sum after the expiry of 3 years or interim payouts in the form of dividends.

3) High Returns Attainable Via Tax Saving Mutual Funds (ELSS)

Equity Linked Savings Schemes help you grow money. As they invest in equity-related instruments, so when the stock Market grows over a certain period of time your money grows as well.

4) ElSS Offers Tax Free Returns for Gain up to INR 1 Lakh Under Section 80C

As per the Budget 2018, ELSS would attract Long Term Capital Gains (LTCG). Investors would be taxed at 10% (with no indexation) under long term Capital Gain tax. Gains up to INR 1 lakh are free of tax. Tax at 10% applies to gains above INR 1 lakh.

How to Invest In ELSS?

Being one of the most popular section 80C investments that provide both tax saving and capital appreciation, it is important to understand how to invest in an ELSS or Equity Linked Savings Scheme. There are two ways to invest in this mutual fund. One is by investing through lump sum and the other is through SIP (Systematic Investment plan).

SIP or Systematic Investment Plan

SIP or Systematic Investment Plan is one of the convenient ways to invest in tax saving Mutual Funds. It works on the Basis of regular small investments within a fixed period of time. It enables you to make lower periodic investments which are much better than paying huge lump sums to meet the gap in section 80C.

Hence, this concludes that tax saving is important. So before the tax siren stresses you out at the end of the financial year make sure to invest smart. Get the best tax benefits by investing in ELSS mutual funds through SIP or lump sum early in the financial year. This will not only keep your expenditure managed but will avoid managing last minute finances to make way for ELSS investing. Invest in ELSS before it’s too late!

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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